One of the aims for the utilization of biofuels is the climate change mitigation through the reduction of GHG emissions in the transport sector. Measuring the con­sequences of biofuels requires consideration of their full life cycle, from biomass pro­duction and its use of various inputs to the conversion of feedstocks into liquid fuels and the subsequent use of the biofuels in combustion engines (Rasetti et al. 2012).

The potential mitigation varies across types of feedstock, feedstock production process/technology (e. g., usage of nitrogen fertilizer), and fossil fuel consumption in both production of feedstocks and its conversion to biofuels.

Several standard life cycle analyses (LCA) of biofuels in the literature have reported a wide variation on the reduction of GHG emissions; this is mainly due to differences on underlying assumptions on system boundaries, by-product alloca­tion, and energy sources used in the production of agricultural inputs and feedstock conversion to biofuels. Most studies (Sims et al. 2010; Rutz and Janssen 2007) indicate that biofuels show some emission reductions when compared to their fossil fuel counterparts, especially when the emissions from the director indirect land-use changes (LUC/ILUC) due to biofuels feedstock production are excluded.

According to the respondents consulted in this study, the social projects related to PNPB’s palm oil production are considered pilot studies. To date, these have been implemented by a single company. The Agropalma Group operates in agribusi­ness since 1982 and is the largest and most modern agro-industrial palm produc­tion and palm oil processing complex in the country. In order to assess the family farmers’ insertion difficulties, a description of the social organization of palm, the Agropalma unit in the municipality of Tailandia in the interior of Para was visited. This unit is located 343 km from Belem (Fig. 1).

Overall, a total of 185 families have been integrated into the company, all with an average area of 10 ha according to PNPB’s organization models with partner­ship contracts. In the projects presented by Brito (2010), 10-ha lots (indicated by the shaded area in Fig. 2) were distributed to the first 150 families. This enabled to better organize and concentrate the palm oil plantation. These families (former “squatters”) were relocated in the region and received government lots of up to 50 ha for other crops. However, in the plantations within the INCRA settlements, the palm oil plantation is more dispersed, conducted within the boundaries of the property previously distributed by the institute, which occupies somewhat smaller areas (about 6 ha) than the pioneering projects.

According to the representatives, the company provides technical assistance (at a symbolic price), seedlings, and fertilizers (at market prices, i. e., negotiated with other inputs purchased for of the company’s scale operation) to the family farmers. The values are repassed to the farmer and payment remittance is made in 25 years, term agreement of the clusters provided by the farmers to the processing industry. To encourage the fam­ily farmer’s commitment to the production system, the company created a program to pay for the quality of the cluster. In addition, the company pays a surcharge, which can be up to 8 %, according to the quality observed upon delivery of the raw material.

The bank gives a loan related to implement the crop by the farmer and the loan related to the monthly sum paid to the farmer family during the crop formation period. The 3-year period is considered critical to the sum paid to the farmer fam­ily success of the venture

After the first year of production, which is the third year after the crops are planted, 25 % of the cluster production sales are retained, which is destined to repay the debts to the company. Afterward, it deposits the remaining amount into the farm­er’s bank account. The bank, in turn, also retains 25 % to pay for the debt it acquired. In all, 50 % of the family’s income is retained, and these gains vary according to the growth stage of the crop, which is estimated to be of around US$67,300 (Fig. 3).

As for palm oil, there is a high risk involved for a loan around US$3,000,000 to plant 10 ha of oil palm (fostered family farming model area until the present time). By retaining the loan payment by the bank itself, the system imposes the debt repayment. As the company is a type of guarantor, when it invests its own recourses in the arrange­ment, it is then considered a partner in the business, which at this stage is advantageous to the farmer given the difficulties involved in this high investment process.

To encourage the family farmers’ involvement in the production system, the company set up a payment program according to the quality of the fruit bunch. Bonus payment is only done if the production and management controls of the land are up to date with the guidance provided by the technicians.

In general, the consensus is that oil palm has provided a significant income increase to the family farmers involved in the program. Before the project, farm­ers practically lived on the income from cassava flour, which was used as currency to purchase other foods (salt, sugar, and so forth) brought in small vessels and sold by middlemen. According to the farmers interviewed, back then the monthly income varied from US$2,250 to 4,500.

With regard to oil palm, the representatives of the only company that actually has effective arrangements with palm growers claim that they are not favored with the tax benefits of the seal, due to the fact that the projects signed are considered pilot projects and also because of the small volume of biodiesel produced. Thus, for this company, this new venture is still considered peripheral and in the testing phase. However, it is likely that biodiesel companies entering this sector may also face several difficulties, given that in practice, there is a higher cost to implement projects with family farmers in deprived areas with difficult access, especially in regions lacking cooperative and large-scale production tradition—which is the case in the main regions that cultivate oil palm. This survey is deeply exposed at Cesar and Batalha (2013).

Biswarup Sen

Abstract In the past decades, the ‘food versus fuel’ debate has caused a transition of first-generation biofuels to advanced biofuels. Although the later seems quite promising, due to its sustainability and low GHG emissions qualities, it is still far from deployment. The major hurdles to the deployment of advanced biofuels include technical and economic challenges, which must be overcome in the near future. Extensive R&D is in progress to bridge the gap between the current techno­logical status and commercial venture. To overcome the significant challenges that make the commercialization of advanced liquid biofuels unrealistic, at this moment, is of prime importance. One of the most significant challenges is the technological barriers, which will probably require some more years of extensive R&D efforts to minimize the issues and concerns. This chapter deals with the technological challenges that the liquid biofuels industry is currently facing in the biochemical conversion of second- and third-generation feedstocks to advanced liquid biofuels. A general introduction to the topic includes the types of liquid biofuels categorized under ‘advanced biofuels’ and their common routes of production namely biochem­ical and thermochemical. A detailed description of the current technological issues in the biochemical conversion process is presented mainly under the subcategories: improving feedstocks, pretreatment methods, hydrolytic enzymes efficacy and cost, and process integration. The chapter ends with a review of the current status of R&D in biochemical conversion route for advanced liquid biofuels.

B. Sen (*)

Department of Environment Engineering and Science, Feng Chia University,

Taichung 40724, Taiwan

e-mail: bsen@fcu. edu. tw; bisens@yahoo. com

B. Sen

Master Program of Green Energy Science and Technology, Feng Chia University, Taichung 40724, Taiwan

B. Sen

Green Energy Development Center, Feng Chia University, Taichung 40724, Taiwan

A. Domingos Padula et al. (eds.), Liquid Biofuels: Emergence, Development and Prospects, Lecture Notes in Energy 27, DOI: 10.1007/978-1-4471-6482-1_10, © Springer-Verlag London 2014

1 Introduction

Biofuels can be produced from agricultural or industrial wastes and are renewable with a potential to decrease our society’s dependence on petroleum. Focus on bio­fuels has gained global attention both amidst the general mass and scientific com­munity, due to various compelling factors such as increasing oil prices, low carbon emission of biofuels, and less impact on the environment. Among all biofuels, liq­uid biofuels have attracted attention of the scientific community, as it is the most convenient form of fuel for the automobile industry. Liquid biofuels usually include bioethanol, biodiesel, butanol, and oil from algae (Demirbas 2009). Bioethanol is produced by fermentation of sugars (carbohydrates) usually derived from sugar — rich crops like sugarcane or sugar beet and/or from starch-rich crops like corn (first-generation biofuel). Bioethanol is also produced from cellulosic biomass (non-food sources) and from grasses and trees (second generation). Bioethanol is widely used in Brazil and also in the USA.

Biodiesel, on the other hand, is produced by trans-esterification of oils, and its chemical composition consists of fatty acid methyl esters (FAMEs). Feedstocks from which biodiesel is produced usually include animal fats, vegetable oils, palm oil, soy, jatropha, mustard, flax, sunflower, pongamia, and algae. Biodiesel can be used in blends with petrodiesel, the purest form of which is B100; however, B20 and lower blends are suitable for diesel engines. Recently, biobutanol production is being researched extensively owing to its better properties as a fuel than bioethanol and is usually produced under anaerobic fermentation called ABE (acetone, butanol, and ethanol) fermentation. Starch can be fermented by microorganisms like Clostridium to produce ABE in the ratio of 3:6:1. Ralstonia sp. can be used to produce biobu­tanol in electro-bioreactor using carbon dioxide and electricity. Metabolically engi­neered E. coli have also been shown to produce butanol. DuPont and BP have jointly ventured into the large-scale production of butanol (Anton and Dobson 2008).

Worldwide biofuel production has reached 105 billion liters in 2010, up by 17 % from 2009; still biofuels just fulfill 2.7 % of the world’s fuel need for transporta­tion. Brazil and USA are currently top producers, accounting for 90 % of total global production of biofuels, while biodiesel production by the EU accounts for 53 % of total biodiesel production as of 2010. The International Energy Agency (IEA) has a mission for biofuels in meeting the demand for global fuel production at least by a quarter by 2050. Global ethanol production for use as bioethanol tripled between the period 2000 and 2007, which amounts to 52 billion liters. In recent years (2011), its production reached 84.6 billion liters; the USA topped with 52.6 billion lit­ers ethanol production, contributing 62.2 % in global production, whereas Brazil with 21.1 billion liters ranked second. Ethanol-based fuel is largely used in Brazil and in the USA, responsible for 87.1 % global ethanol-based fuel production as of 2011. Most cars in the USA run on blends of up to 10 % ethanol. Brazilian gov­ernment has made it mandatory since 1976 to blend ethanol with gasoline; from 2007 onwards, the legal blend is E25. As of December 2011, Brazil had 14.8 mil­lion automobiles and 1.5 million motorcycles that use only pure ethanol fuel (E100).

The USA uses com as a major source to produce bioethanol. Com in general is an energy-intensive crop, consuming a unit of fossil-based fuel energy to create just 0.9-1.3 energy units of bioethanol. General Motors has initiated production of E85 fuel from cellulose ethanol for a possible projected cost of $1 a gallon.

A directive issued in 2010 by the EU has a targeted goal where all members are required to achieve a 5-10 % biofuel usage by 2020. India and China are vastly exploring the usage of both bioethanol and biodiesel. Currently, India is expanding Jatropha plantations to be used in biodiesel production. India is also setting a target of incorporating at least 5 % bioethanol into its transportation fuel. China that is a major bioethanol producer in Asia has a task plan for 15 % bioethanol incorporation into transport fuels. In the developing countries, biomass like cattle dung, wood, and other agricultural wastes are used extensively as fuel for cooking and heating. IEA claims that biomass energy provides for 30 % of energy supply in developing coun­tries for over 2 billion people. In spite of the many advantages of using biofuels for transportation and energy supply, there exits several technical issues that need to be resolved before biofuels can enter into the market with a cost equivalent to gasoline.

There are some common issues related to the use of liquid biofuels. Higher amount of alcohols in petrodiesel fuel blends is reported to cause corrosion of components in aluminum-based designs; this corrosion can be minimized with the addition of water to the blends; tests based on this concept showed that when water content was up to 1 %, there was no evidence of corrosion; only material discolouration was visualized. Biodiesel under low-temperature conditions showed molecular aggregation and formed crystals. Biodiesel usually contains small quan­tities of water, which arise during trans-esterification attributing to the occurrence of mono — and diglycerides because of incomplete reactions. These molecules act as an emulsifying agent making very small quantity of water miscible. Presence of water reduces fuel efficiency causing more smoke, leads to corrosion of fuel system components. Water presence can also interfere with the production process and may also impact the additives used.

On the other hand, butanol is toxic and its production and usage needs to undergo Tier 1 and Tier 2 health effects testing as per the EPA guidelines. As of 2010 food grade algae cost $5,000/tonne, this is attributed to high capital and operating costs, which may impact its contribution as a second-generation biofuel crop. The US Department of Energy estimates that 15,000 square miles of land will be required for algal cultivation if it has to augment replacement of conventional fuel in the USA. The USA alone consumes nearly 1 million barrels/day of conventional biofuels, and the world consumes about 2 million barrels/day. This number will certainly increase twofold to threefold in the next 20-30 years. However, most conventional biofuels (use first-generation feedstock) are highly government subsidized, which mean they are not economically sustainable, except ethanol from Brazil. Therefore, significant technical challenges must be overcome to ensure that biofuels can become economi­cal and affordable at large scale worldwide. The future of biofuels largely depends on the price of biomass and oil-based fuels, which in turn will increase as the demand for biofuels rises. Therefore, technological breakthroughs in the non-food feedstocks development are the most important challenge that needs to be resolved.

SBA-15 molecular sieve was prepared according to a procedure reported by Ooi and Bhatia (2007). In 300 mL of deionized water and 40 mL of hydrochloric acid (37 %) for 1 h at 323 K, 9.8 g of triblock copolymer poly(ethylene oxide)- poly(propylene oxide)-poly(ethylene oxide) (average molecular weight = 5,800) was dissolved with stirring. Next, 21.7 g of tetraethylorthosilicate was added and stirred for another 10 min. The mixture was then heated at 333 K and then at 373 K for 24 h under stirring. The solid product obtained was filtered, dried at 100 °C, and then calcined in air at 500 °C. Four grams of SBA-15 was dispersed in 100 mL solution of AlCl3 and refluxed at 353 K with stirring for 2 h. The aluminum-containing mesoporous catalyst was then filtered, thoroughly washed with deionized water, dried at room temperature, and finally calcined at 823 K for 4 h.

Biofuels are expected to enhance sustainability and minimize GHG emissions. The argument in favour of biofuels with respect to reducing emissions is that biofu­els, especially cellulosic-based biofuels, emit much less carbon dioxide than con­ventional petroleum fuels. Yet there are many economic issues that currently work against these interests, these being (1) the high production costs of biofuels, partic­ularly advanced (second-generation onwards) biofuels and (2) the comparatively low conventional fuel prices that do not yet internalize the cost of GHG emissions associated with its extraction, production and combustion. This section provides an insight into the economic issues relating to shifting towards a biofuel regime that intends to realize GHG abatement goals.

As discussed earlier in Sect. 3, the production costs of biofuels, except for sugarcane-based bioethanol produced in Brazil, are much higher than those of fossil fuels (IEA 2007; UN 2008). Furthermore, the substitution of fossil fuels with first-generation biofuels raises concerns with respect to social and ecologi­cal sustainability, and also the scope to reduce net GHG emissions (Searchinger et al. 2009). Advanced biofuels could overcome the disadvantages associated with first-generation biofuels, but they are yet to be produced en masse. The technolo­gies employed for advance biofuel work very well at a laboratory scale, but the most significant challenge is to find ways to produce these biofuels at a commer­cial scale, and at a competitive price (EMBO 2009). The EMBO report added that biofuel companies are often too optimistic with their biofuel plans given that they tend to look at projected production costs based on the availability of mature tech­nology at commercially feasible prices.

Let us consider the case of Shell and its advanced biofuels projects. In 2008, Shell was working on ten such projects, most of which have now been shut down (Shell 2013). Furthermore, none of those that remain is ready for commercializa­tion. Shell has admitted that bringing these biofuels to the market will take longer time than expected (Economist, 2013). Acknowledging the issues of producing advanced biofuels at a competitive price, and consequently the limited incentive for biofuel producers, the United States Environmental Protection Agency (EPA) revised its target for cellulosic biofuels from about 76 million litres between 2010 and 2012 to 53 million litres for 2013 (IEC 2013). The two potential drivers of a truly sustainable biofuel regime thus appear to be the following: (1) an increase in the price of fossil fuels as we move towards a post-peak oil period, or as conven­tional fuel becomes depleted and the cost of extracting unconventional fuel (from oil sands or shale) becomes uneconomical and (2) the potential decrease in the costs of biofuel production (mainly advanced) as technology slowly matures.

First, we discuss the likelihood of the former, i. e. an increase in the price of fossil fuels. Since the golden age of oil discovery in the 1950s and 1960s (Fleay 1995), the rate of oil consumption has risen steeply (Grant 2007; Leder and Shapiro 2008). Kilsby (2005) reported that the world is consuming oil four times faster than the rate at which it finds new petroleum sources. Although the quantity of world’s oil reserves and the end of the fossil fuel age are highly debat­able (Hirsch 2005; Leder and Shapiro 2008), there is little doubt that this point will eventually be reached. This does not mean that the stock of fossil fuels will run out; rather, ‘cheap oil’ will certainly come to an end (Kilsby 2005). To illus­trate, let us look at the post-peak oil period, when oil reserves and overall supply begin to shrink. In the face of rising demand, this situation would create a sub­stantial imbalance between oil supply and demand (Grant 2007), and the price of oil would rise rapidly as a consequence (Hirsch 2005; Leder and Shapiro 2008). Furthermore, as the world’s stocks of fossil fuels decrease, exploration and extrac­tion activities of the remaining reserves will become increasingly uneconomical, while the energy costs associated with doing so will also rise (Hall et al. 2008; Bardi 2009). These costs could conceivably push the oil price high enough to ena­ble the global biofuel market to evolve sustainably. From an economic perspective, one of three possibilities may occur: (1) oil is the only source of energy supplied in the economy when the price of oil is lower than the price of backstop energy; (2) both oil and backstop energy are supplied in the economy when the price of backstop energy becomes competitive vis-a-vis the price of oil; or (3) backstop energy dominates energy supply in the economy when backstop energy tech­nologies mature and the price of oil is high. At present, with pro-biofuel policies favouring first-generation biofuels, we are experiencing the case of both fossil and subsidized biofuels being supplied in the market.

The second potential driver is the technological advances in the production of advanced biofuels, such as cellulosic-based biofuels. The three main technological conversion pathways for cellulosic biofuel production are selective thermal process­ing, hydrolysis and gasification (Baker and Keisler 2011; Bosetti et al. 2012). Each of these pathways consists of two major steps. The first step involves breaking down the biomass into an intermediate product consisting of simpler substances, while the second step involves processing the same intermediate product into a commercial fuel. The technologies involved in the latter process, such as biooil and biocrude refining, are similar to those used in fossil oil refining. These technologies are relatively mature compared to the technologies involved in the first step. Fischer- Tropsch is worth mentioning here as it is one of the most cost-effective and estab­lished technologies used in the second step. The overall cost efficiency of cellulosic biofuels therefore mainly depends on technological advances for the first step of primary biomass conversion, in particular gasification and hydrolysis (Mandil and Shihab-Eldin 2010; Bosetti et al. 2012). With growing public and private funding towards research and development of advanced biofuels, these technologies are expected to mature by 2030 (Bosetti et al. 2012). Future projected costs (USD/lge) for these technological paths are summarized in the following Table 4, where it is assumed that the feedstock used is switchgrass costing USD 70/tonne.

Given that the increasing demand for biofuels cannot fully be met by first — generation biofuels derived from food crops, the market for advanced biofuels seems to be large enough to accelerate the development and commercialization of advanced biofuel technologies. At present, most of the market demand for biofuels is policy driven. For example, the recently introduced Renewable Fuel Standard 2

(RFS2) in the United States and the Renewable Energy Directive (RED) in the EU both require a reduction in GHGs emission by at least 20-35 %. This can only be achieved by increasing the share of advanced biofuels, which, in turn, creates sig­nificant demand for these fuels. Furthermore, demand comes from industries pur­suing an interest in biofuels for enhancing a socially responsible image, or because they recognize that their business will need to shift to a cost-effective renewable fuel in the future if it is to survive. For example, the US Navy has announced that it wants to source half its nonnuclear fuel from renewables by 2020 (DofNavy 2010), and particularly advanced biofuels, since these avoid the controversial food-versus-fuel issue. Likewise, major commercial airlines (e. g. United, British Airways, Lufthansa and Qantas) that are aiming to become carbon neutral by 2020 have expressed their interest in including cellulosic biofuels within their fuel mix. With the increasing costs of conventional jet fuels owing to the implementation of carbon taxes (e. g. Australia’s carbon tax requires airlines to pay more than AUD 20 per emitted ton of carbon) and increasingly stringent climate change regulatory policies around the world, the airline industry sees renewable energy as a key to its continuing growth (Qantas 2013; IFPEN n. d.).

Despite the market potential discussed above, a neoliberal approach, where only market forces prevail, will not allow advanced biofuels to reach sufficient global market penetration at the required level so as to meaningfully combat GHG emissions from the transport sector. This is because it is unlikely that conventional fuels will ever be priced—at least in the immediate future—at a level that internal­izes all external costs, including the cost of GHG emissions associated with their extraction, production and combustion. It is therefore desirable that some form of government intervention takes place so as to ensure the growth of the biofuel industry, particularly if the projected GHG emission reductions are to be realized at a lower cost than would be the case in a business-as-usual scenario.

Thus, an increased adoption of biofuels at a global level will largely depend on the position that governments take on the trade-off between the environmental and economic justification of biofuels, more so given that current pro-biofuel policies are claimed to be very costly and have a negligible net effects on emissions. For example, taking the US biofuel market into consideration, Jaeger and Egelkraut (2011) found the then approach to be 14-31 times more costly than alternatives such as increasing the gasoline tax or promoting energy efficiency improvements.

In addition, RFS2 and RED have sparked a debate over their effectiveness in reducing GHG emissions owing to potential ‘carbon leakage’ that may occur in other sectors and countries not covered by the same sustainability standards. For example, these standards would provide incentives to bioethanol producers to use relatively clean inputs (e. g. natural gas), while the dirtier inputs (e. g. coal) that might otherwise have been used are shifted to other uses not covered by the sus­tainability standards. Carbon leakage also happens at an international level when Indonesia exports sustainable biodiesel and consumes unsustainable biodiesel at home, or when the United States purchases Brazilian bioethanol to comply with its RFS2, while Brazil imports emission-intensive corn-based ethanol from the United States that does not meet RFS2. Significant volumes of bilateral trade of bioethanol between the United States and Brazil driven by their different biofuel policies have been seen in recent years, but no global changes to emissions were achieved (de Gorter and Just 2010; Meyer et al. 2013).

In the end, of course, the two potential drivers signalled above will have a more important role. In other words, for advanced biofuels to be sustainable in the long term, they will need to be economically competitive vis-a-vis conventional fossil fuels without government subsidies, especially if one takes into account an appro­priate credit allocation for emissions reduction. When the above two driving forces become more entrenched, partially as a result of strategic government intervention, the biofuel industry will be ready to operate independently and according to the precepts of free-market economics.

Everton Anger Cavalheiro

Abstract Biofuel has come up as an important alternative to diversifying the global energy matrix, with economic, social, and environmental impact. Currently, Brazil is the main supplier and one of the top consumers of biofuels in the world, and has prioritized the use of soy as a raw material for the biofuel industry, as well as the sugarcane for producing ethanol; both industries use more than 8 million hectares of cropped land and employ over 1 million people every year. Considering the impor­tance of this subject for the energy matrix and Brazilian economy, we sought to ana­lyze the concentration level for each one of these industries, as well as its impact in pricing. The results point to a low concentration of the biodiesel market, where its production is centralized in four Brazilian states: Goias, Mato Grosso, Rio Grande do Sul, and Sao Paulo. This low concentration implies high competitiveness and homogenous average prices in the last couple of years (2011 and 2012), for com­panies holding 80 % of the market, as well as other firms in this industry. On the other hand, the industrial concentration level of the ethanol distribution channels has significantly grown, thus implying a significant and positive correlation between the increase of concentration and the increase of the contribution margin in this industry.

Keywords Biofuel • Biodiesel • Ethanol • Industry concentration

1 Introduction

Biodiesel has come up as an important alternative to diversifying the energy matrix in the world, where nations have tried to decrease their oil and oil derivatives dependence. Furthermore, the use of biodiesel has generated several economic, social, and environmental advantages, since it can generate both employment

E. A. Cavalheiro (H)

Federal University of Pelotas, Pelotas, Brazil e-mail: eacavalheiro@hotmail. com

A. Domingos Padula et al. (eds.), Liquid Biofuels: Emergence, Development and Prospects, Lecture Notes in Energy 27, DOI: 10.1007/978-1-4471-6482-1_4, © Springer-Verlag London 2014

and rent, it can decrease greenhouse gases emission, and it can also increase a country’s currency value in productive countries, both by exporting product and by reducing oil imports.

On the other hand, biodiesel has raised discussion since some evidence points to a causality relationship between biodiesel and agricultural commodities prices (Senauer 2008; Zhang et al. 2009, 2010). No matter what forces are oper­ating this system, it is crucial to understand the concentration level of this new Brazilian industry, while expecting it to become more and more important for both Brazilian and global energy matrix, as stated by MME (2010), which indi­cates that biodiesel will account for about 8 % of the transportation fuel global consumption in 2,035, a significant increase when compared to 3 % in 2009, for example.

Furthermore, despite being recent, the Brazilian biodiesel industry represents billions of dollars per year and is currently responsible for 5 % of the fuel used in Brazilian transportation, which currently demands 17 million biodiesel barrels/ year. If we consider that around 80 % of the raw material comes from soy, we have 12 % of the total soy crops today (around 27.2 million hectares, according to CONAB (2013) destined to supplying this important national industry.

Brazil is the number one user of biofuel when considering the total con­sumed by vehicles in the national freight, and it comes in as number two, con­sidering volume, after the USA. It is also the largest ethanol exporter in the world. This performance reflects the weather conditions and the technology developed by companies and institutions in the country. This segment accounted for, in 2012, the production on 27.78 million cubic meters of ethanol and bio­diesel in Brazil.

For 2012-2013 (from April 2012 to March 2013), the central-southern region alone exported 3.333 billion cubic meters of ethanol, and the main destinations are the USA (21 %), the Caribbean (31 %), and the European Union (31 %), where the sugar-alcohol exports alone generated US$14,601 billion in 2012-2013. These figures are the result of over a million people working in the area. Despite de expressive mark, the sugarcane for the production of ethanol—the main biofuel currently used in Brazil—takes up a relatively small area in Brazil: around 4.85 million hectares of cropped land.

Considering this problem, and considering the hypothesis that the concentra­tion level increases represents a decrease in the industry competitiveness, creat­ing opportunities for firms to price differently, we established the following research problem: what is the Brazilian biofuels industry concentration level like? Additionally, we tried to evaluate the concentration level of this industry for each one of the five Brazilian regions, the installed capacity usage level, as well as the possible effects of the industrial concentration in market prices.

In order to answer the research problem, we initially sought to show the con­cepts related to the market concentration, as well as their impacts for an industry. Subsequently, we discussed the biodiesel industry model and the possible infla­tionary pressures on food. Then, we presented this research’s method, and the results found.

Before delving into the issues signalled above, it will be necessary to devote some attention to definitions. For example, the various types of biofuel will need to be explained, together with the crops normally employed in their respective production, for this has significant impacts on their sustainability credentials. Attention also needs to be paid to what sort of biomass is optimal for the produc­tions of both fuel types. The production processes, however, will be discussed later under ‘Lifecycle Analysis’ (i. e. Sect. 4).

In the recent years, extensive research on biofuels production from second — and third-generation feedstocks has demonstrated remarkable achievements in terms of efficient enzyme system, microorganisms, innovative conversion technologies, and newer strategies of process integration. Table 5 shows the state of the development of biofuels from second — and third-generation feedstocks. As evident from Table 5, each of the individual processes is at a different stage of development and unless all these processes reach the commercial stage, it is not possible to anticipate a full-scale commercial plant for liquid biofuels production that can be established in all parts of the world. However, recent advances in biofuels research and subsi­dies from government can make it possible in the coming years.

It should be noted that to make biofuels enter into the market and compete with gasoline, it is important that cost is significantly reduced and liquid biofuels should be able to sustain without any government subsidies. Moreover, both private and public sectors should participate actively to realize the liquid biofuels industry to supply the demand of fuels for the future world and upcoming generations. The IEA projects that sugarcane ethanol and advanced biofuels could provide up to 9.3 % of total transportation fuels by 2030 and up to 27 % by 2050. But to achieve these pro­jections, at least a threefold to fivefold increase in land use for energy crops cultiva­tion and significant yield improvement in developing countries is needed.

1.1 Ethanol Policy Scenario

With the growing concern around climate and environment, the viable alternatives to replace fossil fuels with biofuels provided Brazil the possibility of an array of interests among the agents involved in the ethanol production chain. This arrange­ment allowed the creation of the National Alcohol Program (PROALCOOL) in 1975, in which the main objective was to leverage the Brazilian ethanol produc­tion through incentives and subsidies. It is pointed out that, even after the discon­tinuation of the Program in the early 1990s, it has continued acting in institutional arrangements formed with its creation allowing expansion of ethanol production (Shikida and Perosa 2012).

The Brazilian government started subsidizing ethanol production with the beginning of PROALCOOL, and even at the end of this program, the subsidies are indirectly maintained by the Federal Law 8723/1993, which enforce the 20-25 % proportion of ethanol in gasoline. However, there are no subsides of gasoline in the strict sense. There are cross-subsidies between petroleum derivatives such as variation in the tax burden of the ethanol and control of prices of petroleum products (because this prices affect transportation) due to anti-inflationary policy. Indirectly, the variation in the percentage of ethanol in gasoline can also encourage or discourage the gasoline consumption. The international sugar and oil prices also affect ethanol consumption. According to the Sugarcane Industry Union (UNICA) (2011: 11), ‘gasoline pricing remains artificial, with cross-subsidies between petroleum derivatives. In addition to causing problems to the industrial sector, this also distorts the market where hydrous ethanol competes directly with gasoline.’

In the last decade, the alcohol sector began a new phase of expansion with the permission of the European Union to import Brazilian sugar. However, the increase in exportation of sugar caused an increase in ethanol’s price and a decrease in its consumption, since both use the same raw material. Another fact is the appearance of flex-fuel cars in Brazil, which allows the use of any combination of ethanol and gasoline on the same engine.

In recent years, the decrease in sugar prices in the international market has reduced the stimulus for expansion of this sector. The price control policy adopted by the Brazilian government, which is stimulated by the lobbying of the alcohol sector, has raised the interference in the ethanol market. In addition to offering low interest loans to sugarcane production, the percentage of ethanol in the gasoline was increased and it promoted greater tax relief in the sector.

The prices for feedstocks are critical for the economically viable production of bio­fuels. In addition to raw material prices, crude oil as key competitor product also influences the profitability of biofuels. Prices for both are interrelated. Increasing oil prices tend to fuel demand for alternative sources of energy and thus the prices for raw materials. A positive correlation between the prices for crude oil and global grain commodities has been demonstrated in a model by Chen et al. (2010).

In order to project raw material prices for biofuels, we analyse the relation between the price of biofuel raw materials (pB) of type k (maize, wheat, rapes oil, palm oil and wood) and past crude oil prices (pO) while also considering other major drivers of raw material prices, including a price index for agricultural prod­ucts (pA), growth in world population (POP), growth in wealth (per capita income: GDP/POP), change in energy consumption per capita (EN/POP) and global infla­tion (pGDP). The linear regression model to be estimated reads as follows:

pBk, t = a + ei, kpOt + P2,kPAt + e3,kpGDPt + xi, k POPt + X2,k GDP/POPt

+ X3,kEN/P°Pt + &k, t > (1)

with t being a time index for months, a being a constant, в and x being parameters to be estimated and є being a time and k-specific error term. We take the following monthly price data for five different biofuel raw materials k.

• Maize: US No. 2 Yellow, FOB Gulf of Mexico ($/t)

• Wheat: No. 1 Hard Red Winter, ordinary protein, FOB Gulf of Mexico ($/t)

• Rapes oil: Crude, fob Rotterdam ($/t)

• Palm oil: Malaysia Palm Oil Futures (first contract forward) 4-5 % FFA ($/t)

• Wood: average price ($/m3) for softwood (average export price of Douglas Fir, U. S. Price) and hardwood (Dark Red Meranti, select and better quality, C&F UK port)

The data for crude oil prices were obtained as an average of Dated Brent, West Texas Intermediate and Dubai Fateh (Euro/barrel). Raw material prices were taken

All prices are average prices per year Ein barrel Rohol sind 159 L

Die Dichte von Rohol schwankt zwischen 0.8 bis 1 kg/l—beim Vergleich mit Rohol rechnet man

im Allgemeinen mit einer Dichte von 0.883 kg/l

Als mittlere Dichet von Holz wurde 600 kg/m3 angenommen from www. indexmundi. com. Table 1 shows average annual prices for the five biofuel feedstocks as well as for crude oil, based on monthly data from April 1982 to April 2010. The historical price overview shows significant differences in price developments for the different types of raw material. For example, the palm oil price has doubled between 2006 and 2010, while during the same time prices for wood remained almost stable.

Annual data on population, GDP, energy consumption, inflation and agri­cultural prices were taken from the ‘World Development’ and converted into monthly data through linear interpolation. We measured all prices, GDP and

energy consumption in US Dollars and converted them into Euros using monthly exchange rate averages.

An ARMAX (Harvey 1993) modelling approach with a one month autoregres­sive term of the structural model disturbance and additive annual effects was used (see the results in Table 2). It is obvious that the price of crude oil is significantly correlated to prices for biofuel feedstock. Crude oil has the weakest impact on prices for wheat and maize, while rapes oil and palm oil prices are heavily influ­enced. The influence on wood is in between these two groups. The results indi­cate that both rapes and palm oil have been used as energy inputs to a significant degree in the past and are therefore more closely related to oil price changes than wheat and maize. These are still predominantly used as input for food production.

Future prices for biofuel feedstock in 2015 and 2020 are based on the estimation results in Table 2. For the calculation, projected values for all independent vari­ables are necessary. In regard to prices for crude oil, we refer to oil price scenarios that have been published by IEA (2007) and the International Energy Outlook. We then investigate the effects of crude oil prices per barrel of Euro 50, Euro 100, Euro 150 and Euro 200 in 2020. For 2015, crude oil prices are calculated through linear interpolation of the 2011 value and the 2020 scenario. In regard to the other vari­ables, we assume a 1 % p. a. increase in world population, a 2.5 % p. a. increase in GDP per capita, a 1.25 % p. a. increase in energy consumption per capita, a 5 % p. a. increase in agricultural prices and a global inflation of 6 % p. a. These assump­tions are close to the average rate of change of each variable during 1982 and 2010. For simplicity reasons, business cycle effects are not taken into consideration.

Dependent on different crude oil price developments, biofuel raw material prices for 2015 and 2020 are determined. Table 3 reports projected prices for 2015 and 2020 as well as actual and predicted prices in 2010. Prices are expressed in Euros per tonne, as production cost scenarios use tonne units for all material inputs. For crude oil, we assume a mass density factor of 0.883 kg/L and for wood a mass density factor of 0.6 kg/dm3. Except for palm oil, predicted 2010 prices are higher than they really were. This indicates that the price level in 2010 was lower than one would have expected if prices had followed the typical development of the past three decades. A calming effect on commodity due to the economic crisis may be one of the main reasons for that. The 2010 price level for all raw materials, except palm oil, was below the peak of the pre-crisis level in 2006 and 2008, while crude oil prices in 2010 were close to the pre-crisis peak. As mentioned before, we refrain from considering any type of business cycle effects on prices but focus on longer term trends in raw material prices. For this reason, we do not adjust projected prices for 2015 and 2020 to the ‘prediction error’ in 2010 but consider the higher predicted prices for 2010 (and consequently for 2015 and 2020) as reflecting an upcoming upwards trend of commodity prices in case the world economy recovers.

Wheat, rapes oil and maize prices are expected to undergo the largest rise until 2020. In the Euro 50 scenario, prices for these three types of biomass will increase by 89, 85 and 66 %, respectively, compared with the actual prices in 2010, which were rather low. In the Euro 200 scenario, price advances will be significantly higher. Changes are all above 100 %. In regard to palm oil, prices are expected to

Table 2 Results of ARMAX model estimations

remain stable in the Euro 50 scenario but increase substantially in the Euro 200 scenario. This reflects the stronger link between crude oil and palm oil prices. As for wood, all scenarios except the Euro 200 scenario expect tumbling prices. The latter estimates constant prices for the time period between 2010 and 2020.

Waste material is another important group of raw material for biofuels. However, there are no world market prices available, due to waste rarely being traded internationally, because of high transport costs per unit and small unit val­ues. In our scenario analysis, we assume that the prices for waste lignocellulosic material are constantly 1/4 of the price of maize and the price for waste oil is 1/2 of the price of palm oil. At this point, we assume that producers are price takers and that production functions are linear homogenous.